FILLING THE GAP: CHANGING THE LANDSCAPE OF FARM LOANS

The vast majority of agricultural debt is held on balance sheet by community banks, the farm credit system and a few insurance companies. The farm credit system and banks generally have little patience for the fluctuating cycles in agriculture and restrict access to credit in more challenging periods and improve access in good times. This is done through a risk rating system which ranks a borrower’s financial position and performance by a probability of default rating (PD rating). In addition, the collateral is ranked by a loss given default rating (LGD), which is essentially a loan to value (LTV) calculation.

Typically, agriculture’s commercial counterparts enjoy access to more diverse sources of capital throughout the risk and yield spectrum. Recognizing the disparity in access to varied sources of capital, Conterra Ag Capital was founded nine years ago to fill the gap American farmers and ranchers experience. Along with the need of diverse capital, ag lending had become bureaucratic and had lost an element of common sense. Conterra’s initial vision was to provide flexible capital and quick decision making.

Although Conterra adheres to well-established ag credit principles, how we deploy the capital we manage is much different. As our regional loan officers work with applicants, they look across our managed capital to match the borrower’s credit profile to the portfolio with the appropriate risk tolerance and rate. The difference between Conterra and other lenders emerges when financial stress appears in an operation. Traditionally, when a lender downgrades the PD rating of a loan, they encourage the borrower to find another lender, or they try to complete a troubled debt restructure (TDR).

Conterra has multiple pools of managed capital that accommodate the best quality borrowers, as well as those with some financial stress and TDRs. Our alternative portfolios generally hold loans structured with shorter fixed terms and longer amortizations, with a period of interest only (IO). The goal of alternative lending is to improve liquidity and build working capital. Our objective is to improve the operation and when appropriate, refinance the loan to a market rate in one of our core portfolios.

Recognizing the ever-changing ag environment, Conterra continues to evolve and improve our current loan options as well as bring new products to market. Our latest product offering includes a real estate scorecard up to $5 million. There are a few other scorecard models in the marketplace, however Conterra’s scorecard has attributes that are enhanced over all others:

  • Larger loan size – up to $5 million
  • 24-hour credit decisions
  • Desktop land valuations available in certain geographies to eliminate the cost and time involved with a USPAP appraisal

Conterra is also launching an operating loan program that secures the growing crop and requires an assignment of crop insurance. Highly competitive rates, 1- to 30-year maturities and amortizations out to 30 years, and diverse capital allow Conterra to compete with all agricultural lenders. The founding mission of providing flexible capital to America’s farmers and ranchers will continue to influence our products and programs as needs emerge.

Regional relationship managers are available nationwide to discuss Conterra’s suite of agricultural lending solutions.

Leave a Reply

Your email address will not be published. Required fields are marked *